DNA Money Edit: It’s time to bank on mergers

When banks shudder under the heavy weight of bad loans, consolidation is one way out. Finance minister (FM) Arun Jaitley’s announcement on Monday on the proposed amalgamation of three state-owned banks -- Bank of Baroda (BoB), Dena Bank and Vijaya Bank – has not come as a surprise.

The merger is expected to create India’s third largest bank, having a total business of around Rs 14.8 lakh crore. Surely, the merged entity will be a strong competitive bank with economies of scale. It will have gross advances of Rs 6.4 lakh crore and deposits of Rs 8.4 lakh crore. BoB’s existing 5,502 branches will give the merged entity a total of 9,489 branches. Similarly, it will have an employee base of 85,675. 

FM has ensured that employees’ interest would be protected, but the government will have to look at a lean and mean structure, going forward.

While Dena Bank has been placed under the prompt corrective action framework by the Reserve Bank of India (RBI) with restrictions on lending, it has a strong current account savings account (CASA) ratio of 39.8% and a strong MSME portfolio. Vijaya Bank, among the only two lenders to have reported a profit in 2017-18, has a strong credit culture. The merged entity will have a wider market reach and better operational efficiency with an extensive bouquet of products and services for customers.